Think Fast Dr. Speth!

It’s not easy being an automotive executive these days, but spare a thought for one in particular.

(c) motori.ilmessaggero.it

While life for Auto-industry bosses everywhere is, to put it mildly, challenging, the situation facing Jaguar Land Rover CEO, Dr. Ralph Speth appears to be steadily worsening. According to a recent Financial Times report, JLR will announce up to 5,000 job cuts across the UK business in the new year as the carmaker implements a three-year ‘Project Charge’ restructure – a drive to slash costs and retool the business for a rapidly deteriorating commercial landscape.

Faced with mounting costs, paralysing uncertainty owing to the ongoing Brexit omnishambles, weak demand for diesel-engined vehicles across Europe and the adverse effects of worsening trade tensions between China and the US, JLR find themselves, even by motor industry standards, in a fairly iniquitous set of circumstances.

Earlier this year, Speth stated that he expected the business to break even in the financial year to April 2019, a reversal from earlier predictions of profitability. At an October investor presentation, he proposed that JLR would seek ‘quick-win’ non-product-related savings and divestments, in addition to savings in purchasing and logistics. Additionally, production at Castle Bromwich and Solihull plants were scaled back, agency staff were cut, while production of the Discovery model was relocated to the newly inaugurated JLR facility in Slovakia.

It’s difficult to see how all this could possibly have come at a worse time for the JLR board. US sales are down, with the exception of models like Land Rover’s Discovery and Range Rover Velar. The previously strong-selling Evoque is in the process of being run-out in anticipation of a new-generation model to go on sale in the spring. Similarly, European sales have been adversely affected by the backlash against diesel, and changes to EU emissions regulations (both of which have affected the entire industry).

Meanwhile, with revenues falling like ninepins, investment in new product must continue apace, with Speth outlining to investors that JLR plans to introduce a hybrid or electric version of every model they currently produce by 2020. Furthermore, in addition to the recently announced Jaguar I-Pace (deliveries of which rumoured to have been delayed owing to hardware issues) and Range Rover Evoque II, Land Rover is likely to introduce the new Defender SUV towards the latter part of 2019. And while the latter model is unlikely to add a great deal to JLR’s volume, it will be of massive reputational significance.

As an almost entirely UK-based auto business, the spectre of the UK leaving the EU on WTO terms this coming March represents a greater existential threat than it might to any rival carmaker. Even in the best-case scenario, the likely hit should the UK exit without a deal or a viable transition period are potentially catastrophic.

Earlier this year, amid much dismissive posturing from leave-supporting MPs, Speth publicly warned the government of the threat to jobs and investment should they fail to agree an exit deal, but with parliament now turned inward upon itself, few appear to be listening. Either way, should the FT be correct in their reporting, those 5,000 lost jobs will not be coming back to the Midlands.

As the headwinds mount, the financial community are now turning fire, with Automotive News reporting yesterday that S&P Global Ratings have further downgraded parent, Tata Motors’ long-term rating – its second such in five months. JLR’s Euro-denominated bonds too have fallen in value.

But not content with pulling the rug from under Dr. Speth’s feet, analysts, Evercore ISI have also been teaching him, in common parlance, how to suck eggs, stating in a note to investors this week, “The company needs to consider whether it’s spreading itself too wide and whether competing with the Germans in the tough premium sedan segment is a viable strategy,” citing higher research and development spending relative to sales and lower economies of scale, relative to rival carmakers.

There is of course more than a grain of truth in this, given that Dr. Speth and his board have made several questionable investment and product decisions, many of which have impacted in a negative manner upon JLR’s bottom line, to say nothing of Speth’s reputation for sound judgement.

However, one thing Evercore’s statement does suggest is that the investor community may have run out of patience with the oft-promised, but seemingly distant as ever brand-Jaguar recovery. However, given that in 2014 rival investor-analysts, IHS Automotive predicted the commercial success of Jaguar’s XE model, one does have to question the usefulness of these self-appointed soothsayers.

JLR needs to cut costs, reduce capital expenditure and turn around its China fortunes, and it needs to execute all of this in perhaps the most unprecedented set of commercial and political circumstances in recent memory. To do so will require enormous skill, the commitment of the entire JLR workforce and a sizeable dollop of political good fortune – none of which are givens. Dr. Speth has up to now been viewed as a highly competent manager, but his sternest test awaits. Much hinges on whether he can pull it off, but the task is, to put it mildly, an unenviable one.

26 thoughts on “Think Fast Dr. Speth!”

As one who is to economics what fish are to riding bicycles, I like Dr. Speth for I met him once at a Jaguar car club lecture at the West Bromwich factory. A friend was considering an XK8 and the lunch provided was exemplary. Entering a doorway, Speth and I did that awkward “after you” dance for a split second. He then outstretched his hand, we shook and he asked me Which Jaguar do you own? “I don’t…yet” was my humble response. He smiled, shook my hand again and replied “maybe we can change your mind here.”
He does seem a nice guy and that can be fatal in the real world, never mind the automotive industry but he s humane, urbane and in a different league to mr Ghosn. For one, I hope he can help turn JLR around.
And my friend didn’t get an XK8 but aVXR instead.
Whilst my mind was changed that day. But not enough to actually purchase a leaping cat.

Jags have been some of the world’s best cars, and often better value than the (mainly German) competition. They looked to be recovering after the abysmal S and X ventures.
Now, Slovakia might be fine for the quite simple Discovery, but a whole generation of high-skilled engineers in the UK is the problem. Very few would agree to being relocated elsewhere in the EU, and taking redundo with no comparable work in Britain would be tough too.

I’d assumed Tata had a factory in China, so the slowdown there could be accommodated for a while if it was worth tooling up for the more popular Jaguar models in that country.

As for Brexit, I’ve been following this catastrophe hourly. It’s not exactly the MPs’ fault — most are Remainers — but May herself is the problem. She’s already thrown business under a bus for the Christmas period, despite being warned a year ago that her “negotiations” with the EU threatened millions of livelihoods. The MPs (apart from the Brextremist minority) are afraid their constituents won’t understand the Ireland “backstop” issue, as it was never mentioned during the campaigns leading up to the June 2016 Referendum. So they’re paralysed facing both ways.

May’s schtick has been immigration for a decade, despite her own inability to cut it much when she was responsible for it. It’s one of the “red lines” she started the withdrawal negotiations with, and now her expensive shoes are all tangled up in them. She doesn’t accept that no deal with the EU is possible without also accepting all four of the “freedoms”.

The company is in a perfect storm of events and circumstances – some of which are of its own making. It’s commendable that it appears to be forging ahead with investment in new product at a time when cash-flow is rapidly tightening – remember how FCA slashed its programme during and after the Global Financial Crisis and, arguably, has never recovered since, with moribund product all across its range. I wish them better luck, and a more canny strategy over the coming years. The i-Pace is an exciting and bold step forward for the company, but they will be going up a huge learning curve in terms of productionising and building it, and so one suspects it will be a loss maker for years to come. Ditto the new Defender when it comes as I doubt volumes will generate enough income to cover the investment depreciation charge, even if margins are likely to be high. I do fear for the company’s survival – the next 3-5 years will be crucial. If can survive this, though, it can probably survive anything …

“Slovakia might be fine for the quite simple Discovery”
Just remember Ledwinka was designing and building unit bodied aero shaped cars with all independent suspension when blighty was using box on frame with cart springs.

Maybe, just maybe, the ‘premium sedan’ (urgh) market is impossible for Jaguar now. After all, Cadillac appear to be throwing in the towel.

In any other circumstances this would be seen as an unmitigated defeat, but with the move to electrification Jaguar can turn it into an opportunity. Provided the I Pace proves popular, the much-mooted plan to introduce an electric XJ based on the same technology sounds promising, and then Jaguar could either do another SUV (urgh) or something more interesting… an electric 2+2 coupe, perhaps?

But the I Pace is hamstrung by production issues? Oh dear. JLR can’t do much about external threats, but their continued inability to be a well-functioning car manufacturer is unforgiveable. Basic production and quality issues should be well under control by now. Ironically, Ford seemed to be the one owner who made a measurable difference in this area, but those lessons seem to have been forgotten.

As for the Land Rover Defender… well. I remain mystified that JLR did not invest in a proper replacement when they had the opportunity. The recent launches of the G Wagon, Wrangler and Jimny (new models, but utterly in keeping with what went before) must give them sleepless nights. The new Defender risks being a lifestyle pastiche. They could and should have been much braver, and created a genuine utility vehicle, based on an adaptable chassis frame.

jacomo, I-pace is built at Magna’s Graz factory, who are renowned for offering state-of-the-art facilities and services. Whatever may be hind those production issues is unlikely to be related to the car’s assembly.

JLR’s product strategy continues to puzzle me. Does it really need both the Velar and Range Rover Sport? I think the former is intended to be rather more biased towards on-road use, but how many Range Rovers are ever taken off-road? The Evoque has been a tremendous success. However, its replacement is so little changed that there’s little to frighten the horses but, equally, little new to excite its potential customers. The long delay for a replacement Defender, a model that, together with the Jeep, defined the utility 4×4 sector, is a really bad misstep.

Regarding Jaguar, its saloons appear to be really struggling now. The XE is hampered by its dull exterior, cheap feeling interior and, particularly, engines that are off the pace in terms of performance, refinement and emissions. The second generation XF has abandoned the close-coupled sporting style of the original for a quite handsome but entirely undestinctive six-light design. (I don’t think I’ve seen one in the metal yet, although I simply might not have noticed.)It’s interior looks rather less special than its predecessor’s and it shares the XE’s uncompetitive engine issues. The XJ is by far the most distinctive of Jaguar’s saloon range, but remains a polarising design: those D-pillars look no better with familiarity.

The F-Pace is successful, but the E-Pace is hampered by legacy underpinnings that make it actually heavier than its big brother. The F-Type is still beautiful, but it’s interior is a let down, with cheap feeling switchgear (column stalks, window switches) and some poor detailing (centre console) that betrays JLR’s lack of resources relative to its German competitors. Fancying a change, I owned an F-type convertible briefly between my 987 and 981 Boxsters, and was really disappointed by the tactile aspects of the interior. I would happily have forgone the theatre of the rising central air vents for an indicator stalk that didn’t “clack” like it came off a 1980’s Metro. Shockingly bad service from the supplying Jaguar main dealer didn’t endear me to the brand either, so I sold it on after two months.

I really hope Jaguar remains a British success story but, as Eóin concludes, they face some serious challenges ahead.

I actually considered buying an XE because of its largely gimmick-free exterior.
From the outside I think it looks way better than the Giulia, let alone anything from Germany.
But there were so many quality glitches and lack of attention to detail in the XE on display at the dealer that it was ruled out in minutes.

Last time I looked, even the F-Pace’s sales were in decline y-o-y. It’s also looking rather mundane these days compared with the equivalent Land Rover – so, what would you choose: F-Pace or Velar? Or, E-Pace or new Evoque 2? I especially think the E-Pace has an awkward look about it. The pricing differential between the last comparison in particular is narrow, especially if bought on a monthly price plan.

As I put in my initial post, I’m certainly no economist. But whenever I read of or see a Jaguar or Land Rover story, they’ve already sold every car produced. How can that be?
Is the saloon car dead? Possibly for I cannot remember seeing an XE or for that matter a new XF or J for positively ages. Where we live seems to attract the Green Oval; every iteration is en vogue (pun intended) and one admits to aspiring to a Range-y of some variation.
As for the Defender, LR have totally lost sight of the ball. Builders naturally buy ‘em but I’m seeing increasing number of contractors using Ford Explorers. From deep underground mining to the farmer on the fell and weekend mug pluggers in between, LR has a massive following; but if the goods ain’t there, they shall purchase elsewhere.
I even heard the Queen was so put about by the end of the defenders production, she enquired in writing – only to be informed like the rest of us that it was no longer viable for emissions/ crash safety/ insert other guff as appropriate

To be fair, the Jaguar design is just better executed in every way, if quite similar and derivative at a glance.

I think the big problem with the E Pace is that it’s just not a very good product, principally because it’s far too heavy. All that talk of lessons learned from the X type and Jaguar dumps a portly, FWD hatchback on us? Oh dear.

Unfortunately, this dumpy little thing probably exists because the XE has bombed – hamstrung by poor engines. This is heartbreaking, because – yet again – it’s a nice idea, but half-done.

Having seen an E-Pace in the wild, I can say that to me it does not look dumpy. It caught my eye for its modern forms and sleek look. It was mid metallic grey and looked very good in a street setting. I think Jaguar have made a nice job of a format that is very unJaguar.

I remain a tad perplexed about the demonisation of diesel being blamed for the poor sales performance of JLR products. As I understand it they already produce cars with a choice of spark plugs or not so one would have thought that potential buyers firmly lodged on the anti diesel bandwagon could simply have transferred their attention to petrol models.

One of the more perplexing aspects of JLR’s current offer is the pricing gulf between diesel-powered and petrol-engine models within each relevant price range. Petrol-engine models cost significantly more – far too much for many prospective customers, one suspects – especially given JLR’s reputation for ‘optimistic’ pricing and no discounting. It does lead one to wonder if there are supply issues for petrol Ingenium engines, especially if they are being earmarked predominantly towards non-European markets.

I’ve been trawling through Jaguar’s UK website – the E Pace weighs in a whole 2kg (two!) lighter than the F Pace for a comparable model (180ps Diesel). That is crazy isn’t it? Trying to find out fuel consumption figures from their site is a bit of a challenge too; anyone would think they had something to hide. The 200ps petrol average consumption is 35mpg. Gulp (literally).

I once owned a very rare fully automatic Citroen DS which in the wonderful words of ‘DS Le Grand Livre’ was summed up with the description “elle fait consommer des torrents d’essence” – the E Pace seems to fit that description rather nicely too. Torrents…

It’s sad to watch, but JLR is probably doomed. If there is a global recession next year they will be gone for sure.

My analysis of their fundamental problem is that JLR trying to compete with much larger vehicle manufacturers, feature for feature, gadget for gadget, complicated tech for complicated tech… and with smaller development budgets JLR always comes up short on both features and reliability.

If JLR is competing against VW/ Audi, Mercedes and Lexus/Toyota on EVs, hybrids, autonomous driving … etc, JLR is going to lose every time.

My suggestion is that they break away from that “feature for feature” competition that they are destined to lose, and go for mechanically and electronically simple vehicles, and compete on unique and elegant body styles and finish, interior design and materials quality. Forget the fuel consumption penalties along with diesels, turbos, ev’s and build simple, powerful NA gasoline engines.

JLR could also drastically reduce the cost of its assembly plants by “derobotizing” and going to more manual processes. Simpler to manage and far less investment. The Toyota Ohira plant shows that high quality cars can be built in a much simpler and cheaper factory.

Angel: post of the day. Thanks for that link to TTAC. I stopped reading that site because of something or other. I agree with you about the simplification of Jaguar. I had a similar recipe for Saab (same problem, I suppose).

To return for a moment to Angel’s suggestion. While one can perhaps see merit in such a move, I suspect the automotive press would crucify them for it, the likes of Euro NCAP would bestow an inferior safety rating and from what I can glean from the trade, customers simply would not sign on the dotted line unless their new pride and joy has all the latest electronic bells and whistles – even if they never quite work out how to use them.

Another option for JLR is perhaps to engage in joint ventures with other OEM manufacturers to share the development/manufacturing costs of such tech. I suspect such collaborative ventures will shortly become the norm across the industry.

“… the automotive press would crucify them for it, the likes of Euro NCAP would bestow an inferior safety rating and from what I can glean from the trade, customers simply would not sign on the dotted line unless their new pride and joy has all the latest electronic bells and whistles – even if they never quite work out how to use them.”

Eoin, regarding interior safety. One of the opportunities that the standard dash, wheel, a-pillar, roof and side airbags allows is a return to a “pre-1966” interior fittings and materials. One doesn’t need a padded dash and non-protruding window cranks when airbags protect the occupants from hitting the dash and the doors.

And we are starting to see some manuf (eg Rolls Royce) take advantage of this with dash and door designs with more hard surfaces and protruding metal switches.

The world vehicle market is 90 million new units per year. I think it likely that there are at least 500,000 people willing to buy a luxury vehicle where the money was spent on a beautifully finished interior rather than overly complicated and unusable electronic crap.

As for the opinion of the automotive press… forecasting the future based on trend projection and conventional wisdom is what got Jaguar into this pickle in the first place !

Regarding collaborative ventures, I suspect that JLR has a size problem: it is in the awkward position of not being large enough to go it alone in developing (or commissioning) all the complex technology needed to be truly competitive, but is still large enough to be seen as a competitor, so would find it difficult to negotiate deals such as that between Daimler and Aston Martin. Some third-party technology suppliers might also be constrained by non-compete clauses in supply agreements to major manufacturers that prevent them supplying competitors like JLR.

Notwithstanding the above, I agree that collaborative ventures are probably the way forward for an industry struggling with the huge costs of these technologies.

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